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UPDATE 1-US futures players at odds on post-MF Global path
February 29, 2012 / 9:14 PM / 6 years ago

UPDATE 1-US futures players at odds on post-MF Global path

By Ann Saphir

CHICAGO, Feb 29 (Reuters) - Four months after $1.6 billion in customer funds went missing in the collapse of futures brokerage MF Global, industry participants are full of ideas for how to prevent a similar debacle going forward.

They are far from agreed on which are the best.

About two dozen regulators, exchanges, brokers, money managers, dealers, and academics took part Wednesday in an open meeting at the Commodity Futures Trading Commission on ways to beef up protection of customer collateral.

MF Global marked the first time that so many customers lost so much money in a futures industry default. Regulators are still seeking the missing money.

Among proposals discussed Wednesday, the first of a two-day roundtable: keeping more client funds at clearinghouses, forcing broker chiefs to sign off on large transfers of money that could belong to clients, requiring brokers to keep a buffer of excess customer funds on hand, and creating an insurance fund to backstop clients who do lose money in a default.

“To the extent that there is a consensus that forms out of these roundtables and the public input, I think it’s always important that we protect the public” CFTC Chairman Gary Gensler said shortly after testifying before the House Agriculture Committee on Wednesday. “We should (act) even if that’s in an incremental way.”

But even as every idea had several champions, each had its detractors.

IntercontinentalExchange Inc, for instance, came out in support of a plan to apply to futures trading the rules that safeguard customer money in over-the-counter swaps trading.

“I think that the commission and probably the industry is going to be a little bit hard pressed to come up with explanations to the market place on why a model that exists in OTC for ... large hedge funds can’t be applied to farmers, ranchers, and cotton growers in the U.S. if it adds extra protection and it’s cost effective,” said Tom Hammond, president of ICE Clear US.

But Tim Doar, a CME Group Inc managing director, said he was not convinced the model actually does protect customers better. Others raised objections about added costs.

For a Factbox on post-MF Global rule proposals, see

Panel members failed to agree on details even for broadly popular ideas -- providing more transparency on how brokers invest customer funds, for instance.

“We shouldn’t have to jump through hoops to get the information,” said Tracey Jordal, a senior vice president at bond fund giant Pacific Investment Management Co. “Transparency is a good thing.”

The Futures Industry Association said it would prefer brokers report those investments monthly.

CME Group said it was looking at a proposal for brokers to report those daily.

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